Debit Cards Doubling as Student IDs: A Trap?

If you're a college student, your school might try to sell you more than an education, a dorm room and a meal plan. You might get an offer for a prepaid or debit card that, in some cases, doubles as a student ID.

Since federal lawmakers imposed restrictions on marketing credit cards to college students in 2009, more schools are building relationships with financial institutions that offer other types of plastic to students, according to the U.S. Public Interest Research Group (U.S. PIRG). In fact, the consumer advocacy group has identified more than 900 card relationships between colleges and financial institutions, affecting 42 percent of students across the country.

Many schools offer one or more of the following types of cards, all of which can, at some schools, also serve as a student ID:

On-campus prepaid cards. These cards often are marketed under names like “campus cash” or, say, “Cougar cash,” if that's the school mascot, according to U.S. PIRG. School officials often tout these cards as a convenient way for students to pay for anything on campus — from a snack in the cafeteria to laundry costs to textbooks. In some cases, off-campus vendors such as pizzerias or coffee shops also will accept the cards.

Prepaid or debit cards that can be used anywhere. Some schools offer a prepaid card or a debit card, usually branded with a Visa or MasterCard logo, that can be used anywhere, on campus or off. Prepaid cards can be loaded as needed by students or their parents, while the debit cards typically are linked to a checking account into which a student can deposit funds, according to U.S. PIRG.

Financial aid disbursement cards. Debit cards that are linked to a Federal Deposit Insurance Corporation (FDIC)-insured bank account often are used as a way for schools to distribute financial aid or campus refunds to students. While schools often push this option by making it faster and easier than getting a paper check or direct deposit, it is the most expensive way to get your financial aid money because of the fees involved, says Edmund Mierzwinski, consumer program director for U.S. PIRG.

Universities are making these deals with financial institutions partly to make up for their budgets being squeezed in recent years, Mierzwinski says. According to U.S. PIRG, some schools bring in tens of millions of dollars from these deals. But experts say the fees on these cards can be very high — and students should think twice before signing up. Here are six tips for students from personal finance experts:

1. Learn how the card works. If your school is offering you a card, read the fine print before you sign up. Find out whether the card can be used only on campus (or anywhere), whether it can be used to get money from ATMs and how you load funds onto the card. Also keep an eye out for restrictive rules. For example, according to U.S. PIRG, one company that has arrangements with many universities, Higher One Inc., requires students to withdraw $50 or more to get money from an ATM. So, if the balance is less, students might be forced to use the remaining money by making purchases from retailers.

2. Know the cost of the card. “With student loan debt topping $1 trillion, students want to avoid paying fees that get them deeper in debt,” says Rohit Chopra, student loan ombudsman for the U.S. Consumer Financial Protection Bureau, which is gathering information about fees associated with student financial products such as debit and prepaid cards.

According to U.S. PIRG, students should look at all the fees associated with any card they're considering. Common fees on cards offered through colleges include fees for using another bank's ATM, recurring overdraft fees charged for each day the account is overdrawn, transaction fees for choosing “debit” and using a PIN when making a purchase with the card, reloading fees, account inactivity fees and account closure fees.

3. Think about ATM access. A shortage ofATMs can force students to seek out other ATMs and get hit with fees. For example, according to U.S. PIRG, Higher One disburses financial aid money at 520 schools but has only 600 ATMs, which creates long lines and sometimes results in machines running out of cash. Also, ATMs might be placed in locked buildings not accessible on evenings or weekends, which forces students to pay to go elsewhere. Higher One, which agreed in August 2012 to pay $11 million restitution to 60,000 students after the FDIC determined it had improperly charged certain fees, declined to answer questions for this story.

4. Don't let your school pressure you to sign up for a card. Remember, you always have a choice of which financial products you want to use. If your college has a student ID that doubles as a prepaid or debit card, you should be able to get the ID minus the financial product. If you go that route, your card might still have a bank logo on it, but it wouldn't function as a way to make purchases, Mierzwinski says.

5. Be willing to wait for your money. Many colleges push a card as a speedy solution for getting leftover financial aid money, but fees are steep. Experts say you'll keep more of your money if you're willing to wait a few extra days for a direct deposit into your own bank account. A bonus? You might be less likely to spend that money on mochas at the campus coffeehouse or snacks if it's less accessible to you, says Charles Green, professor of finance at Seminole State College in Florida.

6. Look at alternatives. Plastic is a convenient option for students, but it's best to shop around rather than just take the card your school offers. First, think about your needs and how you will use a card. For example, if you use ATMs frequently, you might look for a financial institution that has many ATMs in convenient locations. Then look for the best deal. Green recommends students take a look at what credit unions offer because they often have lower fees.
“The No. 1 recommendation I give to students in my personal finance class is not to have any loyalty to the school when it comes to shopping for a card,” Green says.

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